Mental Capital The economic significance of mental health

Transcription

1 Mental Capital The economic significance of mental health

2 2008 Rifka Weehuizen All rights reserved. Published by Universitaire Pers Maastricht ISBN Printed in the Netherlands by Datawyse Maastricht

3 Mental Capital The economic significance of mental health PROEFSCHRIFT ter verkrijging van de graad van doctor aan de Universiteit Maastricht, op gezag van de Rector Magnificus, Prof. mr. G.P.M.F. Mols, volgens het besluit van het College van Decanen in het openbaar te verdedigen op vrijdag 27 juni 2008 om uur door Rifka Maria Weehuizen UUNIVERSITAIRE PERS MAASTRICHT P M

4 Promotor Prof. dr. L. Soete Beoordelingscommissie Prof. dr. L. Borghans (voorzitter) Prof. dr. C. de Neubourg Prof. dr. N. De Vries

5 The density of settlement of economists over the whole empires of economic science is very uneven, with a few areas of modest size holding the bulk of the population. [ ] The [Economic] Heartland is more overpopulated than ever, while rich lands in other parts of the empire go untilled. John Maynard Keynes (1936), The General Theory, Preface. The less then we trouble ourselves with scholastic inquiries as to whether a certain consideration comes within the scope of economics, the better. If the matter is important let us take account of it as far as we can. Alfred Marshall (1890) Principles of Economics, Bk.I,Ch.II, par.35.

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7 Contents Chapter 1. Introduction Introduction The Donner report Mental health: an economic issue This thesis Aims Outline...7 Chapter 2. The changed nature of work Introduction The changing labour market The acceleration of creative destruction Increased job insecurity, turnover and unemployment The psychological costs of unemployment The changing content of work The rise of the service sector The increase of non-routine work The increase of knowledge work The increase of emotion work The changing organisation of work Organizational change Flexibilisation and psychological transaction costs The changing management of work The changing psychological contract Institutionalized change The intensification of work and non-work Effort-biased technological change The intensification of work The intensification of consumption The intensification of housework Polarisation of effort levels Hidden costs and effort inflation Conclusion...60 Chapter 3. Mental health Introduction Mental health: definitions and considerations Definitions of mental health and mental illness Definitions and demarcations Mental health: a social construct Interpreting the figures on mental health Mental health: economic costs The burden of disease Direct costs Indirect costs i

8 Other costs Costs of work-related stress Increasing (costs of) mental health problems? Assessing the evidence Mental health: its role in production The stress response Mental health as output: the production of stress Mental health as input: stress and production Mental resources: cognitive energy Mental health and production The productive aspect of mental health: agency The nature of agency Agency in economics Agency and mental health Agency and performance Chapter 2 revisited Agency as a resource Conclusion Chapter 4. Mental Capital Introduction Mental capital? Mental capital as a durable produced means of production The production of mental capital Investment in and returns of mental capital The use of the capital concept The capital controversies The introduction of human capital The introduction of social capital New reality, new concepts? Mental capital and economic theory Mental capital and economic growth theory The puzzle of economic growth The resistant residual Endogenous growth theory Mental capital and human capital theory The narrowing of the human capital concept Mental capital and human capital formation Mental capital and human capital use Some new explanations of old phenomena using mental capital Mental capital and bounded rationality Rationality: bounded Preferences: not necessarily optimal Information: incomplete and biased Calculation: satisficing rather than maximizing Decision and execution: weakness of will Endogenous rationality Conclusion ii

9 Chapter 5. A model of mental capital and technological change Introduction Variables and relationships The changing composition of work The intensification of work and mental effort Self-regulation and mental effort Mental effort and mental fatigue Recovery Burnout The Model Results Discussion The rate of technological substitution Decision latitude of the worker Mental capital Concluding remarks Appendix Chapter 6. A model of mental capital spillovers Introduction Variables and assumptions The variables of the model Innovation, flow of stress and level of stress Stress level and productivity Stress level and coping Stress level, spillover and responsiveness Stress level, buffering and responsiveness Overview: streamlining the variety of effects and pathways Model Agents Relationship Dynamics A specific example Implications for productivity and economic growth Comparative statics Discussion Possible extensions Mental capital Conclusion Chapter 7. Conclusion References Nederlandse samenvatting Acknowledgements About the Author iii

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11 List of Figures 1.1. Suicide rates and labour productivity over time in Ireland Health effects of job insecurity and unemployment, UK Work pressure by sector in the Netherlands, Cognitive demand of work, Netherlands, Emotional burden of work by sector, Netherlands, Autonomy over working time, by group of countries (%) Percentage of workers in EU indicating having to working at very high speed Percentage of workers in EU indicating having to work to tight deadlines Evolution in work intensity, EU15, (%) GDP as percent of EU average, and life satisfaction: Ireland, Hours spent caring for children and adults per week, by country group and sex Hours spent on housework per week, by country group and sex Continuum of depressive symptoms in the population The relative influence of biological and environmental determinants of mental health problems Different types of deviation and their relations to mental illness Burden of diseases world-wide, measured in disability life adjusted years Proportion of incapacitated per illness, the Netherlands, Causes of absence at work, Germany 1994, 2004 (1994 = 100%) Costs of conduct problems and conduct disorder Suicide and productivity in Ireland, Health effects of work on the labour force (EU-15), 1995 and The correlation between job stress of persons and health care costs of these persons, in a period of five years Annual prevalence of anxiety disorders in primacy care in the Netherlands in the period Effects of stress on employee performance Yerkes-Dodson relationship between stress and performance Schematic representation of the effects of stress and mental health on productivity Effects of Depression on Experienced Utility Conditions for Burnout Fixed aspired production level Flexible aspired production level Technological change Buffering as a function of responsiveness An effect of an increase in the efficiency of self-control An effect of an increase in the efficiency of self-control Dyadic buffering as a function of the relationship intensity Relationship between responsiveness and stress Phase diagram Effect of external stress in the presence of a social relationship Stress as a function of innovation rate Economic growth as a function of innovation rate v

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13 Chapter 1. Introduction 1.1. Introduction 1 In today s innovation-driven, knowledge-intensive economy, people increasingly work with their heads rather than with their hands. In the past, physical health was crucial for performance at the job; today, it is mental health. Consequently, the mental health of the labour force has become an important economic factor, more than in the past. At the same time though, exactly the mental health of the labour force seems to be under increasing pressure in today s economy. Alarming reports abound about increasing work-related stress, burnout, depression and mental health problems, and the enormous costs associated with them, in terms of reduced productivity, increased absenteeism and work disability, reduced human capital investment, and increased health care costs. So while mental health has become more important to the economy, is also under more pressure from the economy to some extent two sides of the same coin. Mental health is becoming more valuable and more scarce qualities that are at the core of what economics is about. However, in spite of the obvious, growing economic importance of mental health, economic science has not found a real place for this factor in its theory and analyses. Though there is ample knowledge about the effects of economic developments (such as the emergence of the service economy, the changed nature of work, increased flexibilization and innovation) on mental health, and vice versa, of the effects of (lack of) mental health on central economic concerns such as productivity, innovation and growth, this knowledge is only very partially exploited by economists. This is not only intellectually a bit disappointing but also socially slightly alarming, because the evidence suggests that some of the notions put forward by economists may be a factor in creating an economy which affects negatively affects the mental health of its agents. For example, economists tend to argue for a more flexible labour market to increase the mobility of labour; this tends to lead to job insecurity, and psychological research shows this leads to less commitment, less mutual investment, and less trust between employer and employee, which has a negative effect on productivity. Or, economists tend to argue for more innovation, the engine of economic growth; but psychological research shows that high rates of change tend to be stressful too employees and this tends to negatively affect productivity, which may cancel out the positive productivity effects of innovation, at least to some extent. Mental health is much more than just a form of health. In its most basic sense, it is a condition for the validity of what may be the central assumption of economics: rationality. Mental health by definition affects the ability of economic actors to be rational. 1 Parts of this thesis have been published in earlier versions. Chapter 1 is partly based on the research in Weehuizen (2003), a position paper for the Dutch Ministry of Economic Affairs, which was published in the strategic series of the Ministry. Chapters 2 and 3 are to some extent based on two chapters of Weehuizen (2006), a report for the Dutch Consultative Committee of Sector Councils for research (COS) and its member council, the Advisory Council for Health Research (RGO). The model of chapter 5 is based on the model in Straathof and Weehuizen (2005). The analysis presented in chapter 4 and the model developed in chapter 6 have not been published in any earlier form. 1

14 Consequently, an increase in mental health problems further removes economic reality from the economic ideal: a state of optimal utility for all. There may thus be a special responsibility of economists to make sure that economics helps to protect mental health rather than damage it. This thesis hopes to help addressing this challenge, by providing more insight on the economic significance of mental health. Presenting and integrating knowledge from a large variety of disciplinary sources, it proposes to see mental health as a form of capital. While aware of the vulnerability of such a proposal, the thesis finds the capital concept useful for capturing a range of economically relevant characteristics of mental health The Donner report The idea for this thesis was born out of a few intriguing sentences in an important Dutch policy report in Just like many other countries in Europe, the Netherlands suffered of a stubborn epidemic of work disability due to mental health problems. 2 This particular type of work disability had become so prevalent in the Netherlands in the nineties (accounting for more than one third of all work disability), that it was considered one of the main policy challenges of the time. Many studies were done to investigate the causes of the problem, and most concluded that the main cause was institutional; the Dutch law for work disability (the WAO ) had created incentives which were at best ineffective, and at worst counterproductive. The work disability arrangement effectively functioned as an institutional trap : it was easy to get in, and very hard to get out. To some extent the WAO (the Dutch law on work disability) was consciously used by firms as a convenient way to reorganise their organisations and get rid of their least productive employees. Instead of firing employees who did not fit after a re-organisation, or who were unproductive for some reason, they could be categorised as work-disabled. Neither workers nor unions protested very hard against this practice, since work disability benefits were higher and more attractive than unemployment benefits. Often there were psychological problems involved (if only because of the psychological consequences of a reorganisation and the notion of being superfluous), and it was relatively easy to use the system. It was assumed that in particular the category of work disability caused by psychological problems would respond favourably (shrink) to changes in the system. As a consequence of this perspective on the problem, new rules, stricter criteria and activating incentives were developed and implemented. The new rules provided employers with a huge financial disincentive to have sick or work disabled employees (having to pay their wages for two years), making them more motivated to prevent (work-related) disability and more creative in finding solutions for fixing unfavorable person-job fits. As to employees, they faced a less attractive financial disability arrangement and got both more help and more pressure to accept work fitting with their specific work disability. The emphasis shifted from work disability to work ability. 2 For a more elaborate analysis of the problem of work disability due to psychological reasons in the Netherlands including detailed references, see Weehuizen (2003). 2

15 It was expected that the new rules would especially work out well in the area of work stress. To some extent, endogenizing the costs of work-stress by making employers responsible for paying wages for sick employees indeed inspired many employers to keep better track of the stress levels and mental health of their employees, and to intervene in an early phase before employees really started to spiral down. However, the institutional changes had some unintended consequences. A less than desirable effect was increased front door selection : employers more actively starting to select on psychological features of an employee, and becoming more reluctant to offer permanent contracts. Moreover, to some extent institutional reforms led to a shift of the problem rather than diminishing it; part of the people with damaged mental resilience who in the past would have entered work disability, now often ended up into unemployment. Changing the rules was successful in that it did significantly reduce the number of people formally work disabled. However, against expectations, there was no disproportionately high reduction of the proportion of work disability due to psychological problems; this remained unchanged at about 30 percent. Was there perhaps more than meets the eye to the work disability problem? Perhaps the institutional setting of the Netherlands was not (only) causing the high rate of work disability due to psychological causes, but (also) signaling a deeper development in the economy. In an attempt to get at the bottom of the stubborn problem of disability, a commission was instituted in the Netherlands, consisting of a large number of experts, policy-makers and representatives of employers and employees: the Commissie Donner (named after its chair). In the final report of this Commission (2001), the focus was largely on the need for redesign of institutions, which were seen as the main culprit. However, the report also included a few intriguing paragraphs about other possible causes of psychologically-based work disability: 3 The developments of the demand for WAO benefits and of the composition of the WAO-populations are not autonomous. They must be placed against the background of the substantial social and economic changes that have taken place in the past decades. For example, the structure of the economy, the production and the work organisation changed considerably. These changes are directly and indirectly influencing the demand for work disability arrangements. The continuous reorganisations in work organisations for example, which is accompanied with insecurity and mismanagement of human resources form an independent source of illness and work disability. (p. 29). The fact that [characteristics of] the work situation, including psychological and other not immediately obvious deficiencies, increasingly form the cause of work disability, can very well (also) be explained by the transformation of the economy in the past thirty years, in which physical and industrial work was largely replaced by immaterial service activity and knowledge work. It cannot be excluded that the development of the volume of work disability (WAO) indicates a deterioration of the work climate, due to sharpened productivity demands, higher time pressure and higher pace if work. That these changes result in increasing work disability in the Netherlands could then be explained by the fact that the Dutch law enables this more. [ ] If it would turn out that the development of the volume is a consequence of growing risks and health 3 Commissie Donner (2001) Working on work ability (translated from Dutch). 3

16 problems, related to the current way of producing and organising, than that would be the cause, and perhaps also the problem. (p.47). The report did not elaborate on these remarks, although they signal a number of complex and fascinating questions about the productive basis of our economy Mental health: an economic issue This thesis addresses the issue of the economic role of mental health. This is major economic issue, concerning millions of people and billions of euros a year. Over the past decade, the major economic impact of mental health problems have become increasingly clear and recognized. An important step in this recognition was the landmark study commissioned by the World Health Organization, The Global Burden of Disease (1996). This report showed, unexpectedly, that depression had become the second leading illness in terms of burden of disease, being more costly to society than many other much more salient illnesses. Follow-up reports such as the World Health Report of 2001 supported the prediction that in 2020, depression will rank highest in terms of lost productivity, disability and costs. Mental health is an important economic issue, as some numbers will illustrate. 4 Mental health problems costs the EU an estimated 3-4 percent of GDP, mainly through lost productivity. The cost of depression alone to the US economy in 2000 was estimated to be $83.1 billion; of this $51.5 billion (62 percent) were workplace costs (absenteeism and low productivity). The cost of depression in Europe is similarly high: 118 billion per year in About 28 percent of the labour force in the EU-15 (more than 40 billion workers) report having to deal with serious work stress, making stress the number one negative health effect of work. About 20 percent reports chronic fatigue due to pressure at work. In 2000, the ILO estimated that the costs of work-related stress amount to percent of GDP. Many resources are spent on repairing and improving mental health. Antidepressants have mushroomed from a modest market in the 1980s into a $15 billion industry in 2004, having annual growth rates of up to 24 percent. The self-help market in the U.S. was worth $9.6 billion in 2005; 11.4% yearly growth is expected through 2010, to a value of $13.9 billion. Many billions are spent on stress management and counselling programs by the privatesector, the prevalence of these programs in the US growing from 27 percent in 1985 to 48 percent in While Europe shows a lag in these practices, it is catching up rapidly. There is a growing recognition that mental health is an economic asset, and that damaging this asset should be compensated for. Illustrative is that in 2001 the first ever British case in which an employer admitted liability for causing stress resulted in 67,000 compensation to an employee; later that year a primary school teacher received a record compensation payment of 254,000, having retired from her job after a nervous breakdown due to excessive job stress. In the Netherlands a similar trend can be detected; in 2002, a woman received from her employer for the damage caused by high stress in her job due to structural overwork; in 2004 a court ruled that an employer had to pay 70,000 to an 4 All these figures including the sources can be found in more detail in section

17 employee to compensate for the damage due to high job stress and resulting burnout. Many more cases have been settled out of court or are still in preparation Mental health problems lead to a loss of productive power in the economy. The most dramatic example of this suicide; a life long worth of (potential) human capital is taken from the economy. Though suicide is a complex phenomenon, there is some indication that it is not only an economic loss, but also a loss related to the economy, or rather, to economic change. As a striking example, Figure 1 shows the growth of productivity and male suicide in Ireland, between 1950 and The suicide rate in Ireland has grown by 400% in only three decades, exactly in the same period when the economy became more dynamic and productivity also increased by about 400%. Up to 90% of suicides are related to mental health problems. Figures such as this need careful interpretation; but the almost perfect correlation between suicide rates and productivity cannot help but make one wonder about how this dynamic period of growth of the economy might be related to the mental health of its members. Economic growth may have a shadow side that needs closer examination; and this examination may provide new insights in the nature of growth itself. Figure 1. Suicide rates and labour productivity over time in Ireland. Source Groningen Growth and Development Centre Total Economy Database; WHO Mental Health Division (2005); graph created by R. Cowan This thesis Aims Facts such as mentioned above raise many questions about the economic dimension of mental health, and about the mental health dimension of the economy. In spite of the clear economic significance of mental health, to date economic theory has not had much to say about it. Mental health is by and large assumed to be a part of health in general, which in turn is a part of human capital thus theoretically mental health is as a subset of a subset of human capital, not attracting particularly much attention. Research in behavioral economics, while recognizing the importance of psychological mechanisms for understanding economic behavior, generally does not include mental health in its analysis. In order to become a real 5

18 topic for economic research, mental health must be conceptualised in a way that makes it accessible to economists, in terms of existing research topics and existing economic methodology. Conceptual work is needed to capture and organise the empirical facts about the relationship between mental health and economic variables such as productivity, growth and utility. This thesis aims to contribute to this conceptual work, by examining the role of mental health in the economy, and by characterising mental health in a way that it can become a meaningful part of economic analysis. Mental health has impact on both consumption and production. In terms of consumption, mental health problems effectively diminish (experienced) utility; it is hard to enjoy your nice car and your fancy TV-set when you are depressed. If GDP growth would be corrected for the loss of actual experienced utility due to mental health problems, the resulting utility growth curve for the past decades might look quite a bit less impressive. 5 In addition, mental health affects production. Lack of mental health is (increasingly) associated with reduced productivity, work disability, and reduced investment in, and use and maintenance of, human and social capital. On the other hand, due to structural changes in the economy and in the nature of work particularly, good mental health is (increasingly) associated with the opposite: higher productivity, and more investment in, and use and maintenance of human and social capital. This thesis will focus on the productive dimension of mental health. It will be argued that mental health is (indicative of) a largely unrecognized production factor, which is of increasing importance due to changes in the nature of the economy. The widespread, increasing attention for mental health problems in the last two decades may be related to the awareness of their increasing economic consequences. A particular mental health problem now has more economic consequences than exactly the same mental health problem in the pas. A century ago, the larger part of the labour force was working in relatively simple manual jobs in industry or agriculture; now the larger part is working in knowledge intensive, emotion-intensive service jobs. Whereas a factory-worker with depressed feelings can still turn the screws on the assembly line, his productivity still largely intact, this is much less the case for knowledge workers doing cognitive work and service workers doing socialemotional work. Mental health problems may or may not have increased, but their economic impact surely has. The productive role of mental health has become more important, and this thesis will provide more insight into this productive role, and how it might be conceptualized as a production factor, and eventually as a form of capital. The thesis will sketch a number of implications of the increased economic significance of mental capital, and will present two formal applications to illustrate how inclusion of this factor into economic analysis can provide important new understanding in the area of productivity and growth. This thesis proposes a way to incorporate the factor of mental health and its productive psychological correlates into economic theory. On the one hand, it is important to do justice to the complex nature of this variable, and thus to not simplify its nature and dynamics too much when translating it into an economic concept. On the other hand, the use of a concept 5 Analogous to correcting price-indices for changes in quality. 6

19 depends not only on its ability to adequately reflect a complex phenomenon, but also on its explanatory power, its practical applicability in the analysis of actual economic problems. This means that there is an inevitable trade-off, which is classic for science: the trade-off between specificity and generality; between correspondence with reality (in this case, its fit with empirical findings in psychology) and applicability (in this case, its ability to connect to existing economic theory and concepts). The challenge is to find the right balance, to design a bridging concept that both psychologists and economists can live with, and that enables and stimulates fruitful exchange between the two disciplines. The thesis will present a way to do this by proposing a concept that may succeed in this balancing act Outline Chapter 2 describes how the nature of work has changed due to creative destruction and technological and organisational innovation. It is shown that work by and large has become more demanding of mental health, and that mental health has become more crucial for performance, given the mentally demanding nature of work. The chapter connects literature from a range of disciplines, including sociology, psychology, organisation science, business studies and labour economics. Chapter 3 describes the nature of mental health. In order to understand how mental health functions as a production factor, we need to know more about its determinants, effects and dynamics. It is shown that mental health is to some extent an output of the economic process, more specifically of work; work can improve mental health through variables such as job satisfaction, and it can reduce mental health through variables such as work-related stress. In addition, mental heath can be seen as an input of the economic process, through its effect on performance at the job, but also more indirectly through its effect on, for example, human capital formation. In order to provide a generalized relationship between mental health and productivity, the stress mechanism is taken as the main pathway of this relationship. The chapter ends by suggesting that it is not mental health in itself, but an important correlate of mental health, namely (self-)agency, that is the real productive factor at stake. Mental health can be seen as a proxy for this factor, just as education can be seen as a proxy for knowledge and skills. The chapter builds its argument on a large body of literature in psychology, theoretical, experimental and observational. Chapter 4 discusses how the economic function of mental health, or rather agency, can be expressed in terms of economic theory. Given what chapter2 2 and 3 have shown us about the role and function of mental health in the production process, it is proposed to conceptualise the factor that is indicated by mental health as a form of capital. The advantages and disadvantages of doing this are discussed from a theoretical and a pragmatic point of view. One issue addressed here is the relationship between mental capital and human capital. It will be argued that they are complements, in the same way that the literature has argued that human and physical capital are complements. In addition, mental capital will be related to growth accounting and bounded rationality; the added value of including this factor in the existing analyses is illustrated. 7

20 The proof of the pudding is in the eating. Thus, chapters 5 and 6 present formal models of different processes involving labour and (elements of) mental capital, to show that this factor can, usefully and without too many problems, be included into standard economic applications, and to show that including it has clear added value, in terms of providing new insight into old issues. Chapter 5 examines changes in productivity of an individual worker when the rate of innovation is increased, leading to an intensification of work. More innovation should lead to more productivity (almost by definition), but when mental capital variables and dynamics are added in the model, it becomes clear that this is not necessarily true. Innovation changes the ratio of routine to nonroutine labour, making work mentally more demanding. The model addresses the connection between mental effort, recovery, and burnout, illustrating pathways from one to the other, and mechanisms by which employees (and employers) can deal with preventing the (structural) productivity loss related to burnout. In chapter 6, a formal model is developed concerning mental capital spill-overs between people. People increase the mental health of other people by providing stress-reducing social support, but at the same time they can function as a source of stress. Overall stress levels determine the nature and size of the spill-overs (in terms of stress) from one person to another. As the rate of innovation goes up, the rate of change within a job increases, and stress rises. Because of spill-overs between two agents in a relationship, above a certain rate of innovation, stress levels rise to such an extent that the positive productivity effects of innovation are countered by the negative effects of the induced stress. In this model we observe multiple equilibria, and the interpersonal interaction leads to hysteresis, making it the more important not to pass the threshold level of innovation. Finally, in chapter 7 some conclusions are drawn about implications and further theoretical development and applications, thereby stressing the need for true interdisciplinary cooperation. 8

21 Chapter 2. The changed nature of work 2.1. Introduction This chapter will show that the nature of work has changed in terms of content, organization, management and intensity, and that this has psychological consequences. Obviously, the developments in the world of work are complex and multifaceted rather than simple and straightforward. Many jobs require higher skills, but many other jobs are becoming de-skilled. Many workers become more autonomous but many others find themselves more closely observed through sophisticated monitoring systems. More flexibility is good for some workers who are enabled to better coordinate their work and life, but not good for others who find it hard to deal with the accompanying insecurity and who have difficulties planning and managing their own time. More autonomy seems desirable, but the accompanying responsibility can be stressful and the necessary self-management is effortful. As always, there are two sides to each coin. This chapter presents a discussion of the main trends, as they are more or less agreed on by research in the area of work. The chapter describes, evaluates and interprets these main trends in the world of work, and reflects on the psychological consequences of these changes. The chapter will show that, by and large, jobs have become psychologically more demanding. In order to perform well on the job, workers in the more dynamic labour market of today s innovation-based economy need a higher level of cognitive, social and emotional skills, and need to be able to cope with change on a structural basis. Good mental health is an essential condition for this; it determines the extent to which we can use our skills effectively and productively. The reverse is also true. We need good mental health for work, but we also need good work for mental health. The review in this chapter suggests that work affects mental health more than in the past for better and worse. Because of its characteristics and it organization, work has a psychological impact on workers which it did not have before; or at least, not to the same extent. It is visible in its positive guise, in the research on job satisfaction and job engagement, showing that jobs have more potential to provide psychologically valuable elements such as intrinsic motivation, self-esteem, possibilities for self-development and personal growth, and a sense of meaning. But it is even more visible in its negative guise, in the ample research on the negative psychological effects of work, such as work stress and burnout, and resulting mental health problems such as depression and anxiety. The chapter will argue that due to the changed nature of work, work affects mental health more than in the past, and mental health affects work more than in the past. In other words, work has become more important as a determinant of mental health, while mental health has become more important as a determinant of (performance at) work. Consequently, mental health is increasingly turning into a critical economic asset, both at the individual and the collective level. In order to support this argument, an extensive overview of literature will be presented, and findings from different disciplines will be combined, contrasted or complemented. A typical 9

22 example for the style of argument is to first present research showing that certain job characteristics are more stressful and associated with more mental health problems than others, next to present research showing that the number of jobs with these types of job characteristics have increased, and then to combine these findings to argue that, on average, work has become more demanding of mental health. This chapter will focus on what is often referred to as high-end or enriched jobs. 1 While both enriched and impoverished jobs may lead to stress and mental health problems, this is not (as) true the other way around: stress and mental health problems have more consequences for enriched jobs than for impoverished jobs, due to the more important function of cognitive, social and emotional skills which critically depend on mental health. Performance on these jobs depends more, and in a more complex way on mental health, and the job risks of high-end jobs in terms of mental health are less obvious, more complex, and less understood. In many ways, work has become more interesting, less (physically) burdening, less repetitive and with a greater potential to be satisfying and meaningful. However, in as many ways, work is presenting new risks and unexpected trade-offs. The research used in this chapter is mostly dealing with the negative rather than the positive psychological consequences of the changed economy. One reason is that there simply is much more empirical evidence on the negative effects of (characteristics of) work. Another reason is that in order to understand the function of some factor, sometimes you can best (or even only) observe features of how this factor works by looking at what happens when it is not there. In addition, while it may be interesting to stimulate the potential positive effects of work on mental health, it is more urgent to understand how to prevent negative effects, in order to reduce real, and, according to the research, widespread, partly hidden suffering of workers. Moreover, from an economic perspective, more insight in the negative mental health effects of work may prove to be crucial for a better understanding the determinants of productivity and thereby of many of the core topics of economics, such as economic growth. Because it is not fully clear to what extent positive effects on mental health improve performance, but it is quite clear how much negative effects on mental health damage performance. The chapter will start to describe the core process driving changes in the nature of work: the process of creative destruction a powerful economic engine fuelled by technological development, competition, and the quest for increased efficiency. This process of creative destruction has changed work in fundamental ways. The current chapter will discuss how work has changed, in terms of the changing labour market (2.2), and the changing content (2.3), organisation (2.4), and intensity (2.5) of work, each time discussing what research has to say about the psychological prerequisites and consequences of these changes. Although the focus is on work, there will be some attention for work-related changes in the non-work sphere, because changes in the sphere of work affect the area of non-work and that in turn affects the area of work. 1 The term high-end usually refers to skill-levels (high) and wages (high), while enriched is an indication that the work is non-routine and rich in content in terms of complexity, variation and autonomy. Low-end or impoverished jobs are characterized by low skill levels, low wages, and by a high degree of standardization and routine work. 10

23 2.2. The changing labour market The acceleration of creative destruction The economy can be understood as a system in which the main rationale is an eternal quest for increasing efficiency, for achieving the optimal allocation of scarce means over alternative ends and thereby maximizing overall utility. This process is driven by competition and profit motives, but also by a more basic desire that seems to be built in (perhaps evolutionary): to do more with less. There are different ways in which an economy can become more efficient: increasing (global) division of labour and specialization lead to economies of scale and scope, technological and organizational innovation lead to more resourceful use of resources. Innovation is generally aimed at creating new products and services thus finding new ways of creating added value (product innovation) and at improving production processes finding new ways of achieving better cost-benefit ratios of production (process innovation). Process innovation generally leads to substitution of human labour by technology, and/or increasing labour productivity by increasing the efficiency of the use of human capital. Globalization (in combination with competition) often leads to relocation of jobs to low-wage countries or to countries with other competitive advantages. 2 Together these forces fuel a process of creative destruction, in which existing jobs are steadily reduced while at the same time new jobs created. While quantitatively this may not lead to any major differences in terms of numbers of jobs in the longer term, qualitatively this leads to major changes, in terms of job content, job organization and job requirements. The number of jobs may be the same, but the jobs themselves are definitely not. This process of creative destruction has accelerated over the last decades, due to a number of positive feedback mechanisms. A first mechanism is related to the prices of the substitutable production factors technology and labour. The extent to which and rate at which technology replaces human labour depends among other things on the relative price of technology and labour (wages). In the course of the past century, the price of labour has been rising steadily 3, while the price of technology, in terms of its productive potential, has been decreasing rapidly, especially in the last few decades. 4 Thus, whereas human labour has 2 Technology has a key role in this. Globalisation is to an important extent enabled by (and to some extent driven by) technological development, especially the development of transport technology and ICT. The same is true for increased competition: it is related to globalisation (which is enabled by technology) which increases the number of potential competitors, due to the increase of transparency of supply and demand on markets all over the world. 3 The price of labour is increasing because of a number of developments. The average amount of education has increased dramatically in the past century. This adds to the cost of labour, since more resources are needed to invest in human capital, both before and during being employed in a job, and this has to be earned back in some way in the form of higher wages. Also, advanced economies need advanced public sectors to accommodate them, to provide the complex legal, social and physical infrastructure needed to support and enable these economies. Having a public sector is costly, and a growing public sector generally means an increase of taxes. Taxes are generally connected to income, and this increases wages. 4 This is partly a decrease in the price of a certain technology, or an increase of the quality and potential applications of a certain technology. For example the price of personal computers has not fallen dramatically 11

24 become more expensive, new technology has become relatively less expensive. Obviously, the price of labour and the price of technology are not independent. The more expensive human labour becomes, the more interesting it is to develop technology for substitution of human workers. Labour needs to offer a better cost-benefit ratio than its potential technological substitutes, and as long as wages are not decreased, the main way of doing this is by increasing human capital per person. This increases the price of labour, since human capital is costly. This in turn makes it again more attractive to replace (increasingly expensive) labour by (increasingly inexpensive) technology, which gives further stimulus to technological development and lowers its relative price. Hence, the price of labour is to some extent a driver for technological development, and vice versa, technological development is to some extent a driver of the price of labour a positive feedback loop. This is to some extent a self-propelling mechanism. 5 A second feedback loop can be found in the nature of technological development itself. New technologies contribute to the development and diffusion of information and knowledge, and through this, to the further development of new technology. One cause of this is the increased codification of knowledge by technology (Cowan et al. 2000); codified knowledge can easily be digitalized after which it can be accessed, copied and transported without additional cost. Information and communication technology (ICT) has dramatically increased the speed and efficiency of information and communication processing, and thereby the availability of and access to knowledge. In addition, people (and thus their knowledge) have become more mobile, as transport technology increased the options for affordable transport. As a consequence, knowledge flows have increased dramatically, and with them the diffusion of knowledge and innovation (Castells 1996). The development of ICT is both a cause and a consequence in this process. ICT speeds up the development, diffusion and application of new knowledge, it speeds up the development and diffusion of new technology, including the development and diffusion of itself (Castells 1996). In addition, ICT has contributed to more transparency, less transaction costs and increased global competition, thereby increasing the need to pursue innovation and thus technological development, again including its own development (Freeman and Soete 1997). The result of the various positive feedback loops is the acceleration of creative destruction and of economic and social change. 6 An important area of change is the increasingly dynamic labour market, characterized by growing (perceived) job insecurity, job turnover, and more frequent (spells of) unemployment. but rather the quality, speed and applications of PCs have increased dramatically while the price remained the same or dropped. 5 E.g. See Arrow et al. (1961); Garud and Kumuraswamy (1995), Dewan and Min (1997). 6 The Social Readjustment Scale (Holmes and Rahe 1967) is used for measuring stress related to life events (e.g. marriage, divorce, death of a spouse, birth of a child, loss of job), and which indicates the degree of change a person experiences over a period of time in Life Change Units (LCU). Miller and Rahe (1997), when reviewing and re-adjusting found that when comparing the average life change intensity scores across 30 years, a 45% increase in mean values was seen; this indicates that the average amount of change of a person has increased. 12

25 Increased job insecurity, turnover and unemployment The increasingly dynamic economy is characterized by more frequent reorganization, downsizing and mergers, 7 and these are accompanied by a growth in contingent employment, such as temporary jobs, part-time jobs and contract performance-based jobs (e.g. Burchell et al. 1999; Quinlan et al. 2001). This in turn has resulted in growing job insecurity, both actual and perceived. 8 Job insecurity fluctuates with fluctuations in the labour market and the economy, but research shows that there is a structural underlying trend of increasing job insecurity. 9 Job insecurity involves much more than just the fear of losing a job; it also relates to the fear of losing valuable job characteristics, and job prospects. Thus, innovation and reorganization without laying off employees can still cause considerable feelings of job insecurity. 10 Feelings of job insecurity can be very intense, stressful and damaging to well-being, and are associated with negative mental health effects. 11 Some research suggests that job insecurity is more stressful than unemployment Downsizing can be necessary to reduce slack and improve performance so that a company can survive. However, Kets de Vries and Balasz (1997) point out that in practice it not seldom has the character of a quick fix leading only to temporary improvements, as surviving employees have to work harder to do the same work with less workers, and become overworked and demoralised, afraid to be next. Burchell et al. (1999) show evidence that corporate restructuring and downsizing have led to the erosion of internal labour markets, reducing incentives to invest in longer term and/or collective firm goals. 8 Burchell et al. (2002) present an overview of empirical evidence indicating a structural increase in job insecurity. Based on representative survey data in a number of industrialised countries, Green (2003, 2007) finds evidence that insecurity increased in the 1970s and 1980s, but that the perceived rising insecurity during the 1990s was a middle-class phenomenon based in part on the experience of professional workers and on the finance industry. Thus job insecurity in one sector may spill over to another sector in the form of perceived job insecurity, even though that other sector does not have real change in job security. In terms of psychological consequences what matters is the perception of job insecurity rather than actual job insecurity; it is the perception that leads to feelings of insecurity, which in turn lead to stress its consequences. 9 Smith s (2000) review shows widespread agreement in the research literature that career stability is on the decline, supported by empirical evidence in terms of figures on turn-over and unemployment rates and on types of contracts and promotion chances. 10 Burchell et all (1999) found that many employees were only moderately worried about actually losing their job, but were very concerned about the loss of valued job features, such as control over the pace of work and opportunities for promotion. These fears were particularly noticeable in organisations where senior management tried to eliminate existing job demarcations and to flatten managerial hierarchies. Making organisations flatter reduces the opportunities to provide (a feeling of) advancement and status for aspiring employees, which is experienced as a form of job insecurity. 11 Research suggests a clear causal link between job insecurity and reduced psychological well-being in the form of anxiety, depression and stress (e.g. Dekker and Schaufeli, 1995; Kim et al. 2006). Hellgren and Sverke (2003) show in a longitudinal study that the cross-lagged effect of job insecurity on mental health problems was significant whereas the reversed effects of mental health complaints on subsequent insecurity were not. Wichert et al. (2000) reviewing the psychology literature on the costs and consequences of job insecurity, conclude that job insecurity, even in the midst of general prosperity, can lead to a deterioration in physical and mental health. Nolan et al. (2000), presenting a review of empirical research findings on the effect of job insecurity on mental health, find that prolonged job experience of job insecurity leads to increasingly impaired psychological well-being. Ferrie et al. (1998) examining the effects of a major organisational change find that compared with controls, employees experienced significant deterioration in self-rated health, including minor psychiatric morbidity. Ferrie et al. (2002) find that loss of job security has adverse effects on self reported health and minor psychiatric morbidity, which were not completely reversed by removal of the threat and which tend to increase with chronic exposure to the stressor. Longitudinal studies such as Frese (1985), Ferrie et al. (1995), Roskies et al. (1993) and Hellgren et al. (1999) clearly indicate that the causality is from job insecurity to health problems rather than the other way around. 13